Could Gen AI End Incumbent Firms’ Competitive Advantage?

November 21, 2024

In business strategy and entrepreneurship, it is necessary to have a protective “moat” to sustain high performance. As gen AI systems advance in capability, they promise to transform and disrupt industries far beyond traditional software, to the point where they will threaten companies’ existing moats and reshape the business landscape. The three pillars driving AI forward — compute power, model development, and training data — are all advancing rapidly, meaning businesses need to quickly adapt to the new paradigm. By lowering moats in many industries, AI will promote new entry. It also will compel incumbents to think strategically and act swiftly to protect their positions. Many companies will face strong competition, often from new entrants that will find it far easier to gain footholds in traditionally difficult-to-enter markets. In fact, many of the new entrants to these spaces will arrive with products and services that are superior to those offered by incumbents. That said, some moats will continue to hold, based on the strength of brand, proprietary data, IP, operational effectiveness, lobbying and government relations, new business models, and personal relationships.

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  Toby E. Stuart is the Helzel Chair in Entrepreneurship, Strategy and Innovation; Faculty Director of the Berkeley Haas Entrepreneurship Program; the Associate Dean for External Affairs; and Faculty Director of the Institute for Business Innovation at the Haas School of Business, UC Berkeley.